Is it permissible for an employee to take out an interest-bearing loan if their employer bears all the interest accrued on the loan, and the employee only pays back the principal amount?

It is not permissible to enter into an usurious loan contract, even if the institution bears the interest, because the employee would be commanding usury and assenting to it by entering into the contract. The Messenger of Allah (peace be upon him) cursed the one who consumes usury, the one who pays it, its scribe, and its two witnesses. The institution can assist employees by arranging legitimate contracts such as Istisna' (manufacturing) or Murabaha (cost-plus financing) contracts with Islamic institutions.